Economies of Scale
Answer intial Post word and then Respond to two peers dicussion listed below
Making Decisions
Making decisions in business can be difficult. Fortunately, we have a lot of great tools to help us! Choose two decision-making tools you learned in our materials this week and explain how you would use them to make a decision with an actual problem you have faced in your professional life
(Peer 1 AG)My first decision making tool I will choose to discuss in this week’s discussion post is the Monte Carlo Simulation. This is a good decision making tool because it involves the uncertainty that can come about when doing risk analysis. The method will allow a person to see all possible outcomes to your question and assesses the impact that the risk could have on the project. This method essentially looks at probability distributions it the most realistic way possible. Fortunately, we have a software that we use which is called The Monte Carlo tool, very original – I know. The way I have used this in the past is when purchasing items for our lab. Usually it used on big projects that will require a lot of supplies over a long period of time so, there is a risk that the cost of the product could increase during that time. The tool shows a triangle distribution using PERT where you put into the software worst case (or highest cost), best case and the most likely cost. Plug all that info into the software and select the amount of times you want the software to run. This will give the number of probabilities based on the times the simulation would be calculated. The other decision making tool I will discuss is the tornado diagram. This is a type of sensitivity analysis that shows what uncertainties in a project would have the largest impact. It gets its name because once it is built it looks like a tornado, with the top (or longest bars) are items that need the most attention and the smaller bars that would require less attention. I build tornado diagrams at work using excel when we are looking at different variables that may affect an animal study. It will tell the team which concerns we have would cause the most important on our timeline and costs if something would go wrong during the study.
(Peer 2 CA) There are a lot of great tools out there to help us make important decisions in our professional lives. In most scenarios I find myself utilizing several scenarios in order to make the best decision, but one that I try to run every time is sensitivity analysis focused on the break even point (Brigham & Ehrhardt, 2015). Whenever I am presented with an opportunity to start up a side business the first thing I do is calculate the initial investment or startup cost and then determine what the profit margin is and how many items I would have to sell in order to break even. If the start up cost is minimal and the profit margin is good enough that I could recoup the costs rather quickly then I move on to other decision tools to further analyze the opportunity. Depending on the type of business there may be different tools used after the break even point, but one other tool that tends to be my final decision factor is some type of opportunity cost analysis. As with everything there is always another option than the one that you are trying to make a decision on (Brigham & Ehrhardt, 2015). For me I typically take a look at what my anticipated return on investment will be from the business opportunity and compare it to what my return on investment would be if I put the same amount of money into my investment portfolio. That said, in order for me to move forward on the business opportunity the return on investment would have to be higher than the return on my investment portfolio when looking at both opportunities compared to their level of risk. Again, I typically try to use multiple tools and they differ for each scenario, but these are the two most consistent tools that I use.